Editorial: Giving state credit where it's due

Credit ratings agency Standard & Poor’s has issued some positive comments, for a change, on California’s debt picture. On Wednesday, S&P raised its outlook on the state’s $75.4 billion in general obligation bonds from neutral to positive, stating that California’s credit rating could be bumped up a notch within the next two years if it sticks close to the budget plan outlined by Gov. Jerry Brown. This would be welcome news for a state that struggled with debt and spending problems for years, and whose credit rating is lower than every other state except Illinois.

But is S&P’s optimism warranted? The improved outlook is based mainly on Gov. Brown’s proposals to pay down some of California’s debt and push a November 2014 ballot measure intended to strengthen the state’s rainy-day fund. S&P was also encouraged by the governor’s recognition that the state’s teachers pension system is in need of a long-term funding plan to cover its liabilities.

But talk is cheap, especially when it is dependent on action by the California Legislature.

Gov. Brown’s helpful, but inadequate, 2012 pension reforms, for example, were watered down significantly by the Legislature. The California Public Employees’ Retirement System has estimated that Assembly Bill 340’s reforms will save from $42 billion to $55 billion over 30 years, and the California State Teachers’ Retirement System estimated the legislation will save that pension plan about $23 billion over the same period, which is a good first step.

Unfortunately, official estimates list CalPERS with an unfunded liability of $87 billion, and CalSTRS with a deficit of more than $80 billion (CalSTRS puts the deficit at $70 billion, thanks to its investments earning 19.1 percent last year). Add in an unfunded retiree health care liability of $64 billion, and the AB340 reforms offset only about one-third of the shortfall. Again, this is assuming the government numbers are accurate. If history is any indication, actual costs may be considerably higher.

California is in desperate need of some fiscal responsibility, and Gov. Brown is to be commended for pushing to pay down debt and build up the rainy-day fund. But will he be able to convince the legislature and contain its spending urges? Or will a whopping 8.5 percent spending increase and a record $107 billion budget not be enough for spendthrift legislators? Color us skeptical, but hopeful.

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